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While saving up to declare bankruptcy sounds odd, that's exactly what many people have had to do since the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act was passed. Many families wait for their tax rebate to file for bankruptcy, and this trend has been increasing as costs related to filing have gone up.

The researchers looked at the relationship between tax rebates and bankruptcy filings in 2001 and 2008, two years when a high percentage of Americans received rebate checks. Total bankruptcies increased by about 2% after the 2001 rebates, and by 7% after the 2008 rebates.

This increase, according to Tal Gross, PhD, who led the study, follows the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act legislation, which raised legal and administrative fees from an average of $921 to $1,477 and mandated credit counseling paid for by the filer. As a result, the number of bankruptcy filings quickly fell by more than half, although they have since returned to near pre-2005 levels.

The 2005 legislation has been at the center of debate since it passed. The question is whether the more expensive rules help screen out spurious bankruptcies or if they just prevent legitimate bankruptcies from being filed. Dr. Gross says his new research supports the latter.

"Bankruptcy can be a Catch-22 when a substantial amount of money is needed to get out of situation defined by having little or no money. If it weren't for these rebate checks, many families would have to postpone filing for bankruptcy for months until they save enough money."

Dr. Gross notes that bankruptcy, for all its negatives, can be an economic boon. Bankruptcy allows for renewed spending, he adds, acting as an economic stimulus. For these reasons, he says, "Lowering barriers to bankruptcy, as long as they don't encourage excessive consumer borrowing, would be a win-win."

The research was published as a National Bureau of Economic Researchworking paper by Tal Gross, PhD, an assistant professor of Health Policy and Management at the Columbia University's Mailman School of Public Health, and colleagues at the University of Chicago Booth School of Business and the Olin Business School of Washington University in St. Louis.